The Federal Reserve hiked interest rates by a quarter point and intimated the U.S. was experiencing strong economic activity. More interest rate hikes could follow this year or next.
Fed’s Comments
Below is a synopsis of the Fed’s comments and my interpretation:
Fed’s Comments
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.
My Interpretation:
The Fed removed the previous language that its policy remains “accommodative.” This implies the Fed has removed the extremely low interest rate policy orchestrated amid the Financial Crisis of 2008. The Fed funds rate reflects this as well. For nearly a decade after the Financial Crisis, the Fed funds rate was below its normalized level of 2 percent. The Fed’s target range is now 2 to 2-1/4 percent, implying it wants to beat back inflationary pressures.
The August jobs report showed signs of an economy on the brink of overheating. Jobs grew by 201,000 and unemployment was 3.9 percent – the same as July’s and way down from the 4.4 percent reported in the year-earlier period. Unemployment is well below the 5 percent threshold considered to be full employment, implying the whites of inflation’s eyes could be here. Read more:
